AM — Adnoc buys half of TotalEnergies Egypt in latest sign of long-term Emirati interest in Egypt

Good morning, wonderful people, and welcome to the last day of July — and with it, the first glimpse of summer’s end. A handful of schools reopen in August. And with the year now about 60% complete, lots of us are kickstarting 2023 planning.

This morning’s Calendar section on the web includes key fall and 2023 events, including our calendar of national holidays to help you plan.

MORNING MUST READ- As we start looking towards autumn, how long should we expect the global food crisis to continue? Wheat prices have plunged almost 40% since May as Russian grains have come back to the market, recession fears have grown, and — as of last week — the market has awaited the return of Ukrainian wheat. But, as the Financial Times reminds us, falling prices don’t mean that we’re out of the woods yet.

Are we looking at a particularly hungry 2023? Analysts say that many of the food price shock’s aggravating factors are yet to dissipate and that the worst days may not yet be behind us. Experts are particularly worried about the likelihood of soaring energy costs this winter and what that might mean for the production of fertilizers. “If we don’t sort out [the issue with] agricultural inputs — in particular fertilizers — then the crisis of affordability will turn into a crisis of availability come next year,” Arif Husain, chief economist at the UN World Food Programme, told the newspaper.

WHAT’S HAPPENING THIS WEEK-

We’ll find out how much of Beltone Financial will be acquired by Chimera this week: Shareholders have until Wednesday, 3 August, to subscribe to Chimera Investment’s mandatory tender offer for the financial services firm. The Abu Dhabi-based investment firm has already acquired a 56% stake in Beltone after Orascom Financial last week agreed to sell its shares. Chimera is offering to pay EGP 1.485 per share for up to 90% of Beltone, valuing it at around EGP 690 mn.

PMI out on Wednesday: We’ll get an idea of how the private sector fared in July when S&P Global releases its latest purchasing managers’ index (PMI) on Wednesday. The index fell to its lowest level in two years in June as surging inflation hit demand and output.

The National Dialogue board will talk about the economy this week: The board of trustees overseeing preparations for the National Dialogue will meet Wednesday to discuss the economic agenda. We have more on last week’s meeting in Last Night’s Talk Shows, below.

LATER THIS MONTH-

• Foreign reserves figures for July will likely be released at the end of this week or the beginning of the next;
• Inflation data for July will land on Wednesday, 10 August.
• Interest rates: The Central Bank of Egypt will meet to discuss interest rates on 18 August.

WATCH THIS SPACE #1- We might send inspectors to check on the Egypt-bound wheat in Ukrainian ports, head of the Agriculture Ministry’s quarantine authority, Ahmed El Attar, told Reuters. This comes shortly after the General Authority for Supply Commodities (GASC) pulled the plug on contracts for 240k tons of stranded Ukrainian wheat booked earlier this year. The four cargoes were booked for February and March delivery but never set sail due to the Russian invasion in February.

Wheat could begin shipping very soon: The first exports of grain from Ukraine since the UN-brokered wheat pact was signed may already be on their way, after Ukrainian President Volodymyr Zelenskiy said on Telegram he expected the first grain shipments to resume sometime over the past weekend. “We are ready to export Ukrainian grain. We are waiting for signals from our partners about the start of transportation,” Zelenskiy said after visiting one of the ports near Odesa.

THE BIG STORY ABROAD-

Biden hasn’t gotten over covid after all: US President Joe Biden tested positive for covid-19 after earlier testing negative in what’s being called a “rebound case,” which can happen with patients who take the antiviral drug Paxlovid, according to a letter from Biden’s physician to the White House (pdf). Biden, who had tested positive for covid-19 last week, will return to isolation. (Associated Press | Reuters | FT | Bloomberg | WSJ | CNBC)

ALSO FROM AMREEKA- The Biden administration scored some rare (and particularly huge) legislative victories last week ⁠— and the bills could have far-reaching global implications.

#1- Biden’s climate agenda is back on track: After the Supreme Court looked to have delivered the administration’s climate ambitions a serious setback last month (and with it America’s legitimacy as a global leader on climate change), Democratic lawmakers last week have managed to agree on a USD 739 bn investment bill, which if it makes it through the Senate would unlock almost USD 370 bn in climate and green energy funding over the next decade. The bill, hailed by Biden as “the most significant” US climate legislation in history, would channel bns of USD into supporting wind and solar generation, and clean energy use in manufacturing. For more: Associated Press | FT | The Guardian.

#2- The US is trying to maintain its competitive edge in the global semiconductor arms race: Legislation that will see USD 280 bn invested in the US semiconductor industry received backing from both sides of the House last week and will be signed into law by Biden in the coming days. The bill aims to boost the country’s manufacturing capacity and will deploy more than USD 50 bn in direct financial assistance to build new semiconductor foundries. America’s flagship chip maker, Intel, has fallen behind its Asian rivals TSMC and Samsung in recent years and is now playing catch up to remain at the cutting edge of semiconductor technology and manufacturing — all at the same moment that China is making surprisingly fast advances on new chip manufacturing processes. For more: Reuters | CNN | WSJ.

WATCH THIS SPACE #2- Tensions between the US and China are rising amid expectations that US House Speaker Nancy Pelosi will visit Taiwan in the coming days. In a two-hour call last week that touched on a wide range of issues, Chinese Premier Xi Jinping warned Joe Biden not to “play with fire” and said that Beijing would “resolutely” defend its territorial claims over Taiwan. Pelosi’s visit threatens to upend the US’ long-standing One China policy that does not explicitly recognize Taipei’s independence. “It’s a very dangerous moment. I think few people actually realize how dangerous this is,” one political analyst told the Guardian. Politico says the trip was due to kick off Saturday or Sunday — and adds that Pelosi won’t confirm her itinerary (including that potential stop in Taiwan) for “security reasons.” (CNN | Politico | NPR)

MARKET WATCH-

2022 is turning out to be one of the worst years on record for emerging markets: Emerging-market assets are now on their longest-ever losing streak after seeing net outflows for the fifth consecutive month in July, according to the Financial Times. Foreign investors have pulled USD 10.5 bn from EM stocks and bonds this month, extending a five-month run that has seen USD 38 bn leave the asset class since March, according to data from the Institute of International Finance. JPMorgan data shows that some USD 30 bn has fled EM foreign-currency bond funds this year.

A record number of EMs and developing economies are at risk of default: Tightening financial conditions and surging food and energy costs are heaping pressure onto developing economies’ finances, pushing a record number towards default. Yields on bonds issued by more than 20 emerging- and frontier-market countries — including Egypt — are now trading 10% higher than US treasuries, a warning sign that indicates a rising risk of default.

EM policymakers can’t rely on a dovish Fed to pull them out of a tailspin: “The Fed’s position seems to be very different from that in previous cycles,” one economist told the salmon-colored paper. “It is more willing to risk a US recession and to risk destabilizing financial markets in order to bring inflation down.”

COVID WATCH-

Almost 77% of citizens eligible for a covid shot have received both doses of a vaccine, according to a cabinet statement released last week. Official figures show that more than 38.3 mn citizens are now fully vaccinated while almost 6.9 mn have received booster shots.

CIRCLE YOUR CALENDAR-

High-speed rail: Coming in November? The first phase of a 660km high-speed rail line that will ultimately link Ain Sokhna to Marsa Matrouh will be inaugurated on 7 November, a cabinet statement read, saying the inauguration was ordered by President Abdel Fattah El Sisi. The government is currently in talks with Siemens to provide the first trains for the line by November instead of in mid-2023, as was originally planned. The Siemens, Orascom Construction and Arab Contractors consortium has already begun to install tracks, systems and power cables for the line.

This appears to be unfolding much faster than we had expected: Construction and testing on the first line was set to be completed during the second half of 2024. Work on the second and third lines is expected to begin sometime this summer, with all of the lines — running roughly 1.3k km across the country — expected to be finished within four years.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

*** It’s What’s Next day: We have our weekly deep-dive into what makes and shapes pre-listed companies and startups in Egypt, the UAE and KSA, touching on investment trends, future sector insights and growth journeys.

In today’s issue: Will family office involvement in VC become the next investment trend to land in the MENA region? In recent years, family offices (FOs) have boosted their venture capital exposure and their strategies are growing more sophisticated, turning them into a powerful, albeit quiet, part of the venture capital world, according to a new report (pdf) by Silicon Valley Bank and Campden Wealth. The number of ventures in which family offices participate has been rising steadily: In 2021, 5% of all worldwide venture transactions included FOs — more than double what it was a decade ago, the data shows.

Adnoc is entering Egypt’s fuel retail space: The distribution arm of Abu Dhabi National Oil Company (Adnoc) has agreed to acquire 50% of TotalEnergies Egypt, according to a press release (pdf) Thursday. Adnoc Distribution could pay up to USD 203 mn for the shares, which the company said would be the largest acquisition in its history.

The details: Adnoc Distribution has agreed to purchase the shares from Total Energies Marketing Afrique for USD 186 mn, but could pay an additional USD 17.3 mn if certain conditions are met, the statement said, without getting into specifics. The transaction is set to be completed in 1Q 2023 and needs regulatory approvals.

What it’s buying: TotalEnergies Egypt is one of the biggest fuel retail operators in Egypt and has a portfolio of 240 filling stations, more than 100 convenience stores, over 250 lube changing stations, and car washes, and wholesale fuel, aviation fuel, and lubricant operations. Under the agreement, some service stations will be rebranded as Adnoc, and some future sites will be Adnoc-badged, the statement said.

What they said: “Adnoc Distribution and TotalEnergies will develop future growth opportunities of TotalEnergies Egypt through unlocking value potential and exploring beneficial synergies in fuel distribution, lubricants and aviation businesses driven by economic growth and post covid recovery,” the statement said.

Adnoc first pushed out of the UAE four years ago: The ADX-listed giant opened in 2017 its first stations outside the UAE in Saudi Arabia; it now has 55 locations in KSA, according to its 1Q 2022 earnings release. The company operates 464 retail fuel stations and 350 convenience stores in its home market.

IN CONTEXT- The Emiratis have been on a spending spree in Egypt led by Abu Dhabi sovereign wealth fund ADQ. Starting last year with upmarket realtor SODIC, which ADQ took over alongside Al Dar Properties, the wealth fund has this year invested USD 1.8 bn to acquire stakes in several EGX-listed companies owned by the government (including CIB) and is on course to acquire 60% of Auf Group via its food subsidiary Agthia. It is also preparing to invest USD 10 bn in industrial projects in Egypt, the UAE and Jordan under a three-way industrial partnership inked in May.

IN OTHER M&A NEWS-

Banque Misr’s acquisition of CI Capital’s consumer finance arm, Souhoola, went through last week in a transaction valued at EGP 173 mn, a source confirmed to Enterprise. The acquisition is part of restructuring plans that followed the state-owned bank’s acquisition of CI Capital in March 2021, they said. The acquisition last year saw Banque Misr purchase 65% of CI Capital, increasing its total stake in the financial services firm to 90%.

Swvl’s acquisition of UK-based smart bus platform Zeelo is off: Cairo-born mass transport app Swvl will not be acquiring UK startup Zeelo, after the two companies said they were calling off the transaction due to turmoil in financial markets, Swvl announced in a filing to the US Securities and Exchange Commission on Friday. The acquisition could have valued the UK startup at USD 100 mn, sources told TechCrunch earlier this year, though neither outfit has publicly confirmed the transaction value.

What changed? The acquisition was announced in April, just weeks after Swvl’s debut on the Nasdaq via a SPAC merger. Since its IPO, Swvl’s shares have plunged nearly 84% amid a heavy sell-off on Wall Street of tech stocks and companies that went public via blank check firms. “All pre-completion obligations were met, but following financial market volatility, Swvl and Zeelo mutually agreed to terminate the planned transaction,” Swvl said in the disclosure.

What they said: “The deal that was agreed no longer made sense right for the parties…not just in terms of the transaction, but also in terms of the growth opportunity…We wouldn’t be able to do any of that anymore,” Zeelo co-founder and CEO Sam Ryan told TechCrunch. “Now, we’re shielded from what’s going on in the public markets.”

What the failed acquisition cost Swvl: In financial terms, the startup had previously funded a USD 5 mn convertible promissory note to Zeelo, which it has now forgiven. In operational terms, the acquisition would have been Swvl’s ticket into the UK, South Africa and the US — three of the biggest markets the startup had been eyeing.

Austerity time for Swvl: In the face of challenging market conditions, Swvl has been forced into cutbacks this year to keep it on track to meet its financial targets next year. The company has slashed headcount by a third, eliminated unprofitable routes, and cut executive pay as it tries to become cashflow-positive by next year. Swvl is expecting losses to almost double this year but thinks it can rebound and turn a slight profit next year.

The news comes just a couple of weeks after Swvl entered Mexico. Swvl has made around five acquisitions to date as part of its global expansion plans. After acquiring Barcelona-based Shotl and Chile / Argentina-based Viapool last year, earlier this year the company bought Turkish firm Volt Lines, German SaaS platform Door2Door and, just a couple of weeks ago, Mexico’s Urbvan Mobility.

Auto sales fell by more than a third in June as import restrictions and economic headwinds hit the industry. Customers bought around 12.3k passenger cars last month, down 35% from June 2021, according to figures provided by the Automotive Information Council (AMIC) last week. This is the fourth consecutive month that car sales have fallen on an annual basis, though June’s figures were a slight improvement from the 11.8k cars sold the previous month.

Bus and truck sales also fell, but at a slower pace: Bus sales dropped 28.3% during the month to 1.6k units, while truck sales fell 16.9% to 4.1k units.

What’s eating the auto industry? A confluence of factors — including import restrictions, surging inflation, and the slide of the EGP against the greenback — has hit local car dealers this year. New rules requiring importers to use letters of credit (L/Cs) were imposed earlier this year and have made it much harder for distributors to import vehicles. Several global car manufacturers have suspended sales to Egypt after local dealers were unable to pay.

REMEMBER- Distributors now have to compensate consumers for being unable to deliver vehicles, per a decision by the Consumer Protection Agency in May. Buyers who made a down payment on a vehicle prior to 12 April are entitled to a refund from the dealer plus 18% interest if their car doesn’t materialize. Buyers also have the option of not taking a refund and instead working out a better arrangement with the distributor.

Looking to side-step that 18% interest (and any contractual requirement to deliver a vehicle at an ‘old’ price), some car dealers have aggressively pushed consumers who booked before 12 April to accept refunds — with several later reaching out to those clients weeks later soliciting new down payments at higher prices.

GlobalCorp plans to issue EGP 1.5 bn worth of securitized bonds in three tranches before the end of the year, Al Borsa quotes the company’s managing director, Hatem Samir, as saying. The non-bank lender late last year issued the first EGP 985 mn tranche of a EGP 5 bn securitization program, which it was aiming to complete by 2023. This would be the first bond sale since the European Bank of Reconstruction and Development (EBRD), SPE Capital, and Amethis acquired 90% of the lender in May.

GlobalCorp’s lending portfolio has now exceeded EGP 12 bn, Samir said. The company plans to lend another EGP 2.5 bn during the second half of this year, he added.

Advisors: Dreny and Partners is the firm’s counsel for the issuances, while KPMG Hazem Hassan will serve as an auditor. The firm is still in the process of hiring a financial advisor for the issuances, Samir is quoted as saying.

Owning a mobile device that hasn’t been approved for use by regulators could soon land you five years in prison under amendments to Telecommunication Regulation Act greenlit by cabinet last week

What gives? The amendments, if passed by the House of Representatives, would toughen penalties for the use, operation, installation or import of any mobile device or telecom equipment not approved by the National Telecom Regulatory Authority (NTRA). The changes aim to crack down on unlicensed rooftop signal boosters and parallel market imports of handsets, among other pieces of kit. Penalties range to five years in prison and fines of EGP 100k-5mn — or double that if the devices are used to “undermine national security,” according to a cabinet statement.

MEANWHILE- It's going to get easier for industrial facilities to get temporary permits: Under legal amendments, the Industrial Development Authority will be able to hand out temporary licenses to industrial companies, allowing them to operate for 1-3 years while they work to fulfill the license requirements.

AND- A move to boost yacht tourism: The cabinet approved the Prime Minister’s draft decision to issue regulations for foreign yachts in efforts to boost yacht tourism in Egypt. The draft decision includes establishing a digital platform for tourist yachts, to be managed by the Transport Ministry’s Maritime Transport Sector. The platform will be the one-stop-shop for tourist yachts, managing, developing and issuing the necessary approvals and permits.

Here we go again: Egypt has again appealed to the UN Security Council to intervene in the dispute with Ethiopia over the Grand Ethiopia Renaissance Dam (GERD). In a letter to the council last week, Egypt declared its “objection and complete rejection” of Addis Ababa’s decision to fill the dam’s reservoir without an agreement with Egypt and Sudan, the Foreign Ministry said in a statement. The letter was submitted a few days after Ethiopia notified Egypt that it would continue to fill the dam this year for the third year in a row during the current rainy season, which Egypt claimed was a violation of international law.

REFRESHER- The dam has been a persistent source of tension between Ethiopia and the two downstream countries in recent years as Addis Ababa persisted with filling the reservoir despite not reaching an agreement with Cairo and Khartoum. Negotiations have been stalled since last summer when Ethiopia embarked on the second filling even as Egypt lodged a formal appeal to the UN Security Council to force it to the negotiating table.

The security council has repeatedly declined to weigh in on the dispute: Intense lobbying last year failed to persuade the council to throw its weight behind Egypt. The council instead urged the three countries to continue with the African Union-led negotiations, a process which Egypt and Sudan have refused to take part in over the past year, calling for new mediators to be brought in to reach an agreement.

The United States and European Union have similarly issued bland pablum about then need for a negotiated solution, stopping far short of throwing their diplomatic weight into brokering on.

The story got some notice in the foreign press over the weeked: AFP | The National | African Business.

Medhat Nafei (LinkedIn) was appointed as the chairman of the newly-established Arab Alloys Company at the Suez Canal Economic Zone (SCZone), he confirmed to Enterprise. Nafei, who is currently an advisor to Supply Minister Ali El Moselhy, was the head of the Metallurgical Industries Holding Company (MIHC) from March 2018 to July 2020.

The 19-member board of trustees of the National Dialogue process decided yesterday to form five committees for the social agenda portion of the ongoing consultations: health, education, social cohesion, overpopulation, culture and national identity, according to a statement. The meeting got extensive coverage from Al Hayah Al Youm’s Lobna El Assal, who spoke with board member Emad El Din Hussein, (watch, runtime: 6:36), Ala Ma’ouleety (watch, runtime: 4:04), and Masaa DMC (watch, runtime: 3:37).

The board will discuss the economic agenda in its next meeting on Wednesday, 3 August, Mahmoud Fawzi, secretary-general of the dialogue, told Al Hayah Al Youm’s Lobna El Assal (watch, runtime: 6:45). The board is scheduled to begin working on an agenda for the dialogue, including choosing the sessions’ participants, after it meets on Wednesday, Fawzi said.

Need a refresher on the national dialogue? You can read our explainer here.

The Madbouly government’s measures to strengthen the social safety net to shield the country’s most vulnerable from the economic fallout from the war in Ukraine also got some airtime from Al Hayah Al Youm’s El Assal (watch, runtime: 31:44), who spoke with Mervat Sabreen, assistant minister for protection and social safety nets at the Social Solidarity Ministry, and Sona3 El Kheir’s board of trustees President Mostafa Zamzam.

The latest on the GERD: Egypt’s appeal to the UN Security Council to intervene in the dispute with Ethiopia over the Grand Ethiopian Renaissance Dam (GERD) got coverage from Ala Mas’ouleety (watch, runtime: 3:55 | 3:00 | 4:00) and Al Hayah Al Youm (watch, runtime: 6:52). We have more on the story in this morning’s Diplomacy section, above.

President Abdel Fattah El Sisi’s meeting with the military’s National Service Products Organization’s (NSPO) director to follow up on ongoing projects, including a dairy plant in Borg El Arab, also got attention on the airwaves from Al Hayah Al Youm (watch, runtime: 4:47) and Sada El Balad (watch, runtime: 2:41). The meeting also saw El Sisi follow up with Jordanian representatives on the partnership between the countries on livestock and feed production.

Human rights is again leading the conversation on Egypt in the foreign press this morning: President Abdel Fattah El Sisi on Friday pardoned eight people including journalist Hisham Fouad and anthropologist Ahmed Samir, the Associated Press and AFP report. In a piece that ran before the announcement, Reuters reports that some critics think the presidential amnesty committee responsible for the pardons needs to move faster as the ongoing national dialogue process unfolds.

Alaa Abdel Fattah was not among those released, and his case is again attracting media attention this morning after several US Democratic lawmakers, along with human rights watchdog Amnesty, expressed solidarity with British lawmakers demanding Alaa’s release, the Associated Press reported. The Egyptian-British citizen has been on hunger strike for over 100 days. The news comes as the Egyptian prosecution denied in an official statement that the prominent activist has been mistreated in prison after his family shared concerns over his health status. Separately, Alaa’s sister, Sanaa Seif, told Deutsche Welle of her disappointment that German lawmakers didn’t “rock the boat” and advocate for the release of her brother.

Also making headlines:

• Activists and environmentalists are voicing concerns that Egypt’s hosting of COP27 will be used to “whitewash human rights abuses in the country”. (The Guardian)
• Residents of Alexandria held a mass funeral for Youssef Radi, a young sweets vendor — known for his stylish outfits and delicious Freska — who was killed in a road accident last Wednesday. (Gulf News)